IRS Issues John Doe Summonses to Several More Banks

At an annual Offshore Alert conference, the director of the IRS offshore voluntary compliance initiative revealed that the IRS recently issued John Doe summonses to seven more foreign private banks. While he did not reveal which banks the summonses were issued to, he did say that they were not limited to Switzerland.

A “John Doe summons” is issued when the IRS does not know the name of the taxpayer, or in this case many taxpayers, who are under investigation. The issuing of theses summonses has been the primary tool used by the IRS to detect U.S. taxpayers with undisclosed offshore accounts. In 2008, it was a John Doe summons issued to UBS that blew the lid off of the secretive world of Swiss banking. This created a rippling effect that led to several banks and banking executives being prosecuted, the Foreign Account Tax Compliance Act (FATCA), as well as the ongoing voluntary disclosure initiatives being offered by the IRS.

When the IRS issues a John Doe summons, it is seeking the identities of U.S. persons with either signature authority or a financial interest in an account at the financial institution in question. Once U.S. authorities are in possession of information related to a person’s undeclared foreign accounts, that person is no longer eligible for the Offshore Voluntary Disclosure Program and faces the risk of criminal prosecution and/or draconian civil penalties. Six months ago, the IRS widened the scope of their summonses when they issued John Doe summonses to mail carriers including DHL, FedEx, Western Union, and UPS, seeking information about U.S. taxpayers with offshore dealings.

U.S. taxpayers who still have undisclosed accounts should act quickly to come into compliance voluntarily. The issuance of a John Doe summons alone does not make individuals with accounts at those financial institutions ineligible for the voluntary compliance initiatives, but the information that the IRS receives in response to the summons could.